Slide 1: Fourth Quarter 2017 Earnings Conference Call
Fourth Quarter 2017 Earnings Conference Call February 14, 2018
Slide 2: Important Notice
Important Notice Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may diff
Slide 3: Fourth Quarter Highlights
Fourth Quarter Highlights(1) Net income: $7.4 million or $0.23 per share Overall NAV-based total return: 1.6% for the quarter, 6.6% annualized Results Continued to grow Credit portfolio Credit Credit gross income: $12.7 million(2) or $0.39 per share Strategy Long Credit portfolio: $1.025 b
Slide 4: Market Conditions & Portfolio Trends
Market Conditions & Portfolio Trends Short-term interest rates rose steadily over the quarter while long-term rates trended only slightly higher, and the yield curve continued to flatten Federal Reserve initiated its tapering of reinvestments in October and raised interest rates in December Over
Slide 5: Objectives
Objectives ■ Focus on growing the Credit portfolio and improving earnings ■ Leverage our proprietary pipeline of loans and make opportunistic allocations to securities to build a diverse group of high-yielding assets ■ Improve and diversify our financing sources ■ Emphasize long-term non mark-to-mar
Slide 6: Operating Results
Operating Results % of % of Quarter Ended Per Average Quarter Ended Per Average (In thousands, except per share amounts) December 31, 2017 Share Equity September 30, 2017 Share Equity Credit: Interest income and other income $ 16,706 $ 0.51 2.67% $ 14,877 $ 0.45 2.35% Net realized gain (loss) 594 0.
Slide 7: Portfolio
Ellington Financial Portfolio
Slide 8: Portfolio Summary as of December 31, 2017
Portfolio Summary as of December 31, 2017(1) Diversified sources of return to perform through market cycles Average Allocated Fair Value Price WAVG WAVG Equity and Asset Allocation by (2)(6) (4)(6) (5)(6) Strategy Equity ($MM) (%) Life Mkt Yield Strategy CREDIT 10% CLO $ 184,569 96.7 4.4 10.5% Resid
Slide 9: Fourth Quarter Portfolio Updates by Strategy
Fourth Quarter Portfolio Updates by Strategy Strategy Fourth Quarter Developments Diversified Credit Residential Mortgage Closed our inaugural non-QM securitization Loans & REO Continue to acquire non-QM mortgage loans; optimistic that market conditions will support a 2nd securitization this yea
Slide 10: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) Estimated Change in Fair Value (In thousands) 50 Basis Point Decline in Interest Rates 50 Basis Point Increase in Interest Rates % of Total Market Value % of Total Equity Market Value Equity Agency RMBS - ARM Pools $ 52 0.01% $ (53) -0.01% Agency RMBS - Fixed Po
Slide 11: Long Credit Portfolio – Holdings Overview
Long Credit Portfolio – Holdings Overview 12/31/17 9/30/17 Investments in Corporate Debt Corporate Debt Investments in Mortgage- and Equity and Equity Mortgage- Related Entities 1% 2% Related Entities 3% 4% Residential Residential RMBS Loans and REO RMBS Loans 16% 18% 10% and REO 22% Consumer CLOs L
Slide 12: Credit: Significantly Diversified Sources of Return Over Time
Credit: Significantly Diversified Sources of Return Over Time 12/31/17 12/31/13 Investments in Corporate Debt Mortgage- and Equity Related Entities 1% 3% Residential RMBS Loans and REO RMBS 16% 18% 82% CLOs 6% Consumer Loans CLOs $1,025MM(1) and ABS 13% European Non- $699.8MM(1) Dollar 18% Denominat
Slide 13: Credit Hedging Portfolio
Credit Hedging Portfolio(1)(2) Corporate CDS Indices / Instrument Tranches / Options / Single Single Name ABS CDS and Corporate Bonds/Corporate Category Names ABX Indices European Sovereign Debt Bond ETFs/Equities CMBX HY CDX OTR Bond Equivalent (4) Units Value (3)(4) Bond Equivalent Value (4) Marke
Slide 14: Agency Long Portfolio
Agency Long Portfolio Agency Long Portfolio: $871.8MM(¹) Collateral Characteristics and Historical 3-month CPR As of 12/31/17 For the Quarter Ended 12/31/17(2) FNMA/FHLM/GNMA 3-Month FNMA/FHLM Fixed - Jumbo Geography Fair ARMS Characteristic(3) Historical 20 Yr Other <1% 1% Non-Owner Value(2)(4) GNM
Slide 15: Agency Interest Rate Hedging Portfolio
Agency Interest Rate Hedging Portfolio(1) We deploy a dynamic and adaptive hedging strategy to preserve book value As of 12/31/17: As of 9/30/17: Short $333MM 10-year equivalents Short $289MM 10-year equivalents >5 Yr Treasury >5 Yr Treasury Futures Futures 0-5 Yr Interest Rate 1.8% 2.1% Swaps 0-5 Y
Slide 16: Agency Interest Rate Hedging Portfolio (continued)
Agency Interest Rate Hedging Portfolio (continued) Exposure to Agency Pools Based on Fair Value As of 12/31/2017 As of 9/30/2017 $1,000 $1,000 $800 $800 Long Agency RMBS Long Agency $600 $600 RMBS $838 $785 $400 $400 ($ in millions) ($ in millions) Net Long Exposure to Net Long $200 Exposure to $200
Slide 17: Borrowings
Ellington Financial Borrowings
Slide 18: Borrowings and Leverage
Borrowings and Leverage(1) For the Quarter Ended ($ In thousands) As of December 31, 2017 December 31, 2017 Weighted Average (1) (1) Average (1) Outstanding Borrowing Debt-to-Equity Borrowings for the Average Cost of Strategy Borrowings Rate Ratio(2) Quarter Ended Funds Credit, Secured Recourse $379
Slide 19: Repo Borrowings
Repo Borrowings(1) ($ in tho usands) Repo Borrowings as of December 31, 2017 Borrowings by Days to Maturity % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 1% 5% 30 Days or Less $37,433 $287,014 $297 $324,744 26.9% 27% 31-90 Days 263,076 542,008 — 805,084 66.6% 91-
Slide 20: Supplemental Information
Ellington Financial Supplemental Information
Slide 21: Gross Profit and Loss
Gross Profit and Loss(1) Resilient profit generation through market cycles Year Ended Years Ended December 31, 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 ($ In thousands) $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % Long: Credit 61,136 9.58 36,203 5.29 46,892 6.09 77,636 11.38 109,536 18.53 129,83
Slide 22: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs Standard Deviation of Q1-2011 – Q3 -2017(1)(2) Quarterly Economic Returns of Hybrid REITs 9.0% Q1-2011 – Q3-2017 8.0% Standard Company Deviation 7.0% EFC 2.47% 6.0% Hybrid REIT #02 3.29% Hybrid REIT #03 3.35% 5.0
Slide 23: Diluted Book Value per Share
Total Return Since Inception EFC has successfully preserved book value through market cycles, while producing strong results for investors EFC life-to-date diluted net asset value-based total return from inception in August 2007 through Q4 2017 is approximately 173%, or 10.2% annualized(1) DBVPS C
Slide 24: Capital, Leverage & Portfolio Composition
Capital, Leverage & Portfolio Composition Capital Usage Across Entire Portfolio(1) Leverage by Strategy (Debt-to-Equity)(1) 3.50 9.11 12/31/2017 3.00 7.57 7.00 2.50 6.80 6.10 2.38 9/30/2017 6.00 2.00 1.85 1.91 1.70 6/30/2017 1.50 1.40 1.00 0.97 3/31/2017 0.86 0.50 0.68 0% 20% 40% 60% 80% 100% - 3/31
Slide 25: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS Three Month Period Ended Year Ended (In thousands, except per share data) December 31, 2017 September 30, 2017 December 31, 2017 Investment income Interest income $ 23,810 $ 21,145 $ 89,629 Other income 1,288 1
Slide 26: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND EQUITY As of December 31, September 30, December 31, (In thousands, except share amounts) 2017 2017 2016(1) ASSETS Cash and cash equivalents $ 47,233 $ 111,423 $ 123,274 Restricted Cash 425 425 655 In
Slide 27: About Ellington
About Ellington EFC is managed by Ellington Financial Management LLC, an affiliate of Ellington Management Group, L.L.C. (“EMG”) EMG was founded in 1994 by Michael Vranos and five partners; currently has over 160 employees, giving EFC access to time-tested infrastructure and proprietary resource
Slide 28: Endnotes
Endnotes Slide 3 – Fourth Quarter Highlights (1) Holdings, leverage and book value amounts are as of December 31, 2017. (2) Gross income includes interest income, other income, net realized and change in net unrealized gains (losses), net interest rate hedges, net credit hedges and other activities,
Slide 29: Endnotes
Endnotes Slide 10 – Interest Rate Sensitivity Analysis (1) The table reflects the estimated effects on the value of our portfolio, both overall and by category, of hypothetical, immediate, 50 basis point downward and upward parallel shifts in interest rates, based on the market environment as of Dec
Slide 30: Endnotes
Endnotes Slide 16 – Agency Interest Rate Hedging Portfolio (continued) (1) We define our net Agency pool assets-to-equity ratio as the difference in aggregate market value between our Agency pools owned of $838 million and our net short TBA positions of $(430) million, divided by the equity allocate
Slide 31: Investor Contact
Investor Contact: Maria Cozine Vice President of Investor Relations Ellington Financial LLC (203) 409-3575 Info@ellingtonfinancial.com Media Contact: Amanda Klein or Kevin Fitzgerald Gasthalter & Co. for Ellington Financial LLC (212) 257-4170 Ellington@gasthalter.com Ellington Financial LLC 53 Fores